More Guidance From Kauffman Foundation On That Elusive Job Creation Goal

April Robinson, Assistant to the Dean of Academic Affairs and Felix Haynes, PresidentHillsborough Community College, Plant City Campus

In the autumn of 2010, we mark the second anniversary of some very high-profile events that sounded the alarm on what many have named the "Great Recession” and that have shaped our economy over the last few years. During the first week of September 2008 we witnessed the seizure of Fannie Mae and Freddie Mac by the federal government as the subprime mortgage market began to crumble. By the middle of the month it was announced that Bank of America had acquired Merrill Lynch and that Lehman Brothers, like its rival Bear Stearns, was declaring bankruptcy. In the third week the U.S. government loaned $85 billion to AIG and announced its massive economic bailout plan. And on September 29, the Dow Jones Industrial Average suffered its largest one-day decline in history, 777 points. With apologies to T.S. Eliot, perhaps September is the cruelest month.

Two years removed from those stunning economic events we now know that the causes of this recession began much earlier, the impact has been worse than expected, and the effects have lasted longer than many anticipated. A July 30, 2010, revision by the Commerce Department showed household spending fell 1.2% in 2009, twice as much as previously projected and the sharpest decline since 1942. Furthermore, economic activity, according to the Bureau of Economic Analysis, appears to have declined by 4.1% from its peak in 2007 to the beginning of 2009 – a downturn in Gross Domestic Product not observed since the late 1950s. Couple such dreary statistics with foreclosure filings still spiraling and a high national unemployment rate that refuses to budge, and it’s no wonder that many believe the economic recovery has stalled.

If the stagnation of the recovery can be seen in these data, then its cause may be found in one simple word – jobs. An economy driven by consumer spending cannot recover with an unemployment rate of 9.5%, representing more than 14.6 million workers according to the Bureau of Labor Statistics (BLS). Foreclosures rates cannot subside when, again according to the BLS, 8.5 million Americans as of July 2010 can only find part-time jobs.

In Search of a Miracle Cure

Job creation has been the miracle cure eluding policy wonks and government bureaucrats as they attempt to cure this ailing economy. A recent study by the Ewing Marion Kauffman Foundation presents data that shows healing the economy through job growth should focus on start-ups. The study, relying on data from the U.S. Census Bureau, found that between 1977 and 2005 new businesses (those in operation for less than 1 year) added an average of 3 million jobs annually to the economy, as established businesses during the same time period actually shed an average of a million jobs per year. Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation, says, "These findings imply that America should be thinking differently about the standard employment policy paradigm,” and added, "Growth would be best boosted by supporting start-up firms.”

America’s community colleges are in a prime position to support fledgling businesses as they have been recognized for decades as a gateway to post-secondary education for many low income, minority, and first-generation postsecondary education students. Now, more than ever, community colleges can serve as a catalyst for job creation through entrepreneurship and business development programs.

According to the American Association of Community Colleges, the average age of a community college student is 29. Institutionally, community colleges possess the experience and resources necessary to train and educate adult students. Moreover, as the price of postsecondary degrees rises, many four-year business degrees have become cost-prohibitive as students can ill afford to invest the money or remove themselves from the job market for four years as a full-time student. Through associate degree and college certificate programs students have the ability to save both financial resources and time, as they prepare to start small businesses.

Education as an economic engine is not a new idea. For years academic and business leaders have advocated higher education as a primary avenue to a successful career for the individual and a stable economy for the nation. Recent emphasis has been placed on STEM (Science, Technology, Engineering, and Math) focused careers and for good reason. But just as training tomorrow’s scientists and engineers is crucial to America’s future economic prosperity, so is training its entrepreneurs. The Kauffman Foundation’s study indicates that job growth occurs in the U.S. economy primarily through entrepreneurial activity, with the most consistent source of new jobs coming from small businesses in their first year of operation.

We have long known that small business creates 60 to 80 percent of new jobs every year. Kauffman has further identified which small businesses should receive credit for that amazing feat. Those who are serious about solving this recession should go to school on Kauffman’s findings.